Mortgage Fraud

Secondary Marketing Fraud Question from an Anon Caller

Question from an anonymous phone caller:

“I work at retail bank. When rates were dropping, I asked my processor to lock several FHA loans.  All the paperwork to lock was completed and sent to management.  Management did not lock the loans, hoping to ride the wave down and earn extra yield for the bank….rates rose and many of my customers lost the ability to lock at the rate we promised.  They were furious and not surprisingly took their refinance business elsewhere. I lost the ability to earn income on those loans and my company also lost interest and fee income. I feel horrible for those customers and I have all kinds of emails saved showing our company promised to lock their loans.  I complained to management and I was fired.  What can I do to report this? I don’t want to have this happen again to customers at that bank.”

 A: Is the bank state or federally chartered? If the bank is state chartered you can file a complaint with DFI.  If the bank is federally chartered, find out the name of their federal regulator from the bank’s website.  The FBI also takes whistleblower complaints on cases like this as the FBI is HUD’s enforcement arm: http://seattle.fbi.gov/ I ran this by our local Seattle FBI Field Office and Jim Siwek, Assistant Special Agent in Charge, HUD-OIG Investigations, says to contact the Seattle FBI office here: (206) 220-5390 or the direct HUD-OIG hotline: 1-800-347-3735. Other ways of contacting HUD:

Mail:
HUD OIG Hotline
451 7th Street, SW
Washington, DC 20410
 FAX: (202) 708-4829
 Email:  hotline@hudoig.gov

Bellevue LO Sentenced

From the Seattle Times:

A federal judge today is expected to sentence a former Bellevue loan officer to prison for perpetrating what prosecutors say is one of the largest home-mortgage fraud cases brought so far in Western Washington.

Christopher Brooks, 39, pleaded guilty to conspiring to commit wire fraud in connection with fraudulent loan applications on 18 Puget Sound-area homes that went into foreclosure and were sold by banks at a loss of more than $2 million.

A grand jury indicted him and his co-conspirators last summer for obtaining about $27 million in fraudulent loans on more than 50 homes in the region. Brooks admitted to paying borrowers to take part in the fraud.

In a memo to the court, Brooks’ attorney acknowledged his client could be viewed as “a poster child” for the nation’s mortgage mess but said the court should take into account the complicit behavior of the banks and give him a lighter sentence.

Read the entire story here.  The attorney for the loan originator tries to put the blame on the banks for allowing so much mortgage fraud to occur during the bubble run up. As an educator, I’m amazed at how many loan originators agree with this attorney. They say, “Jillayne, the wholesale lenders encouraged us and taught us how to over state income and made us sell more of the toxic loan products to people” and there’s no talk of any personal responsibility of the individual LO’s role in the mortgage meltdown.

In the same conversation, loan originators also blame the consumer for not reading their loan documents.

How can LOs not wish any personal responsibility for themselves but demand personal responsibility for their consumers? Answer: They can’t. This is a contradiction that exposes an ugly truth.

Today the reputation of brokers, loan originators, and yes, BANKS is in the gutter. The real answer is that it’s beyond time for loan originators to stop shirking responsibility for their own conduct and embrace a higher duty to the consumer. We have to start rebuilding our reputation at some point. Let’s start right now.

Quarterly MARI Report

MARI has released their quarterly report on mortgage fraud. Scan the PDF here.

What systems did your company have in place to detect mortgage fraud during the bubble run-up of the past several years?

What systems does your company have in place today?

If a loan processor spots potential fraud taking place by an LO at your company, what can he/she do to report the fraud in a way that limits possible retaliation?

Over One Thousand Felons Originating in Florida

The Miami Herald has complete a thorough and frightening investigation into rampant mortgage fraud taking place in Florida. They found that over 1000 convicted felons obtained a loan originator license, even after submitting background checks to the state in order to receive their license. 

The Herald has a full website devoted to their investigation located here.

What’s the solution to the Florida problem? 
Do you see other systemic problems in other states?

What about the ability for a loan originator to escape licensing by working for a different type of institution that does not screen for felony convictions?

Do you believe the National Mortgage Licensing System coming our way in 2009 will reduce the problem of mortgage fraud, make it better, or no change? Why?

Mortgage Fraud Part 3: Recent Developments

Before we use to rely on automated underwriting systems and credit scores we had humans who would carefully underwrite mortgage loan files. During the caveman human underwriter days, loan originators and loan processors knew that underwriters could make or break a file. An underwriter had god-like power to grant or deny the American dream. They had minds like a detective and long-term memory capabilities of an autistic child who can recount the entire screenplay of The Incredible Journey along with all the background noises. Underwriters knew which loan originators had a history of submitting fake gift downpayment letters because they would all sit and chainsmoke together in an un-vented room for 9 hour straight comparing sob stories from loan originators whose files were denied. After work, they would saunter off to network with other underwriters from other banks at a local bar or Mortgage Banker’s Association meeting, same/same. Any fraud that a loan originator tried to pull off was easily sniffed out, with the LO retreating for a while and eventually leaving the company due to the ice cold group shun effect. There were no stated income loans. Two years of tax returns, a P&L and a balance sheet were brought in to underwriting and a few days later, an underwriter would hand the LO a sheet of paper telling the LO what number to use as income for qualifying purposes. If the newly self-employed could not qualify, that person found a co-signer, usually a parent.

Yes, I was an underwriter back in the mid 1980s, and I was the youngest underwriter on staff. I was recruited from processing because I use to submit my files already underwritten along with the conditions for loan approval. What was apparent to me even as a 23 year old was that if my boss had to report to the same person that was in charge of sales and production, every file would have been approved. But she reported to someone else. It was that person’s job to make sure we were making good credit decisions. The goals of production and risk are in harmony, if you take a long-term look at the possible consequences of making credit decisions that are too far out of balance either way. Each part of a mortgage company needs the other part to maximize good consequences for all.

Recent Mortgage Fraud Developments

The outlook for mortgage fraud across the United States is grim. I started this series at the end of October with background research conducted by the FBI that concluded that the most damaging mortgage fraud consisted of many people in the industry working together; fraud for profit.

As of today, I am no longer convinced that fraud for profit is the most damaging kind of mortgage fraud.

Today I believe if we put all the out-of-work underwriters back to work and opened up all the loan files in the defaulting tranches of subprime, Alt-A, and prime loans, we would find the same kind of problems that Fitch, the ratings agency, found when they re-undewrote a small sample of 45 early default loans from the 2006 vintage. Now granted, this is a small sample. However, after working within corporations most of my adult life, I also know that the public really never hears how bad things are. The name of the report is “The Impact of Poor Underwriting Practices and Fraud in Subprime Residential Mortgage Backed Securities” dated Nov 28, 2007. Anyone can read the report by going to fitchratings.com You have to provide them with an email address, but there is no charge. Here are the bullet points:

45 loans with early defaults, originated during 2006, subprime, with an average FICO score of 686. Each loan had one or more of the following characteristics:

66% Occupancy fraud (stated owner occupied but never occupied)
51% Property value was materially different from the original appraisal
48% First time homebuyer yet credit report showed other mortgage information
44% Payment shock greater than 100% and some instances of 200% payment shock
44% Questionable stated income or employment in conflict with info on the credit report
22% Hawk Alert (Fraud) noted on the credit report
18% Social security numbers on the credit report do not match the SS# on the application
17% Seller concessions outside the allowable parameters
16% Credit report indicated their score was artificially inflated via an authorized user
16% Straw buyer
16% Identity theft indicated
10% Signature fraud indicated
6% Not an arms-length transaction

Fitch explained that when a lender used a high FICO score or a high property value/lower LTV to offset other risk factors, when just one of the above areas of fraud were present, the risk of default overshadowed the high FICO and property value.

On December 31, 2007 Fitch downgraded 5.3 billion in RMBS, and this is just ONE ratings agency.

Future Outlook

Old-fashioned human underwriting is making its way back to banks and lenders. This is good news to everyone but the people who answered sales job ads that said “make six figures your first year with no experience” who got into the industry for no other reason than to make money, who don’t care about homeowners, and who really don’t care much about mortgage lending at all. Those that care, that will complain about the amount of time it will take to hand-underwrite your files, to that I say, let the invisible hand of the free market help re-build competent, competitive, service-oriented underwriting departments without the god-like attitude.

The future begins now. We should all expect massive re-assessment of risk management processes within those companies that originate loans such as bankers and lenders. Mortgage brokers should prepare for their banks and lenders to probe deeper into the mortgage broker’s business practices, including systems, education, and training on risk reduction, fraud “no tolerance” policies, and anonymous whistleblower fraud reporting systems.

This also holds true for investment bankers issuing Residential Mortgage Backed Securities. Fitch is putting everyone on notice that it was not able to and cannot, today properly rate RMBS if they’re left to rely on fraudulent loan files. Since risk assessment is only now beginning, I predict the vintage 2007 subprime loans will fare no better than 2006.

However, when we look back 20 years from now perhaps the biggest mortgage fraud case of them all will be the corporate CEOs that left taxpayers and shareholders holding the bag while they scooted out the door holding their golden parachute.

Report mortgage fraud tips to the FBI by following this link.

Part 1: Mortgage Fraud

Part 2: Case Studies

Mortgage Fraud Part 2: Case Studies

We’re lucky to be living far, far away from the mortgage fraud happening in other parts of the United States, right?  Not so fast. In part two of this three part series, we’ll take a look at some mortgage fraud cases in Washington State.

Case Study: Century Mortgage; How to succeed in a down market and earn six figures your first year with no experience.
This case involved a mortgage broker, loan originators, a Realtor, an escrow closer, and an appraiser.  Homes in a Spokane neighborhood had been on the market for many months with no sale.  The mortgage broker talked the Realtor into taking the homes off the market and then relisting them with an increased price.  Straw buyers were found; people who could not otherwise qualify to purchase a home but wanted to become homeowners.  The terms were as follows: 80% first mortgage loan and a 20% second mortgage carried back by the seller.  The mortgage lender was very happy with the 80% LTV loan. At closing the seller’s second mortgage was discounted to $1.00 and paid off.  So the lender believes they are making an 80% LTV loan when they are really making a 100% LTV loan.  Of course the home must appraise for the higher amount so the appraiser made some extra cash off of each on of these deals as did the Realtor and escrow closer, for knowingly hiding the facts from the lender.  The Century Mortgage scheme (no relation to defunct subprime lender New Century) was played out in many neighborhoods in the Spokane area.  The mortgage broker, loan originators, Realtor, closer, and appraiser all lost their license, and banned from the industry for life or for a specified number of years, and some were sentenced to do jail time in the federal pen.  What concerns me about this case is that this could likely happen again because this scheme needs one important element: desperate sellers.

Case Study: Property Flipping; How to get rich quick and then go directly to jail
Ekram Almussa and Josh Kebede bought homes in Seattle and on the Eastside, and sold the homes in a matter of days and sometimes hours later, for thousands more. Here’s an example of how it went down: They would purchase a home for, say, $315,000 and hire an appraiser, the same one each time who magically finds that the home is worth $415,000.  The homes are sold to straw borrowers whose names show on title and on the new mortgage documents, but agree to make payments to Almussa and Kebede, who in return promise to pay the mortgage.  All the loans were owner occupied, but none of the properties were occupied by the owner of record. All the loans were sent to the same underwriter at the now defunct subprime lender New Century, Almussa and Kebede’s lender of choice each time. Almussa and Kebede pocket the $100K, plus the mortgage payments that went into their pocket.  Both Almussa and Kebede were arrested and pleaded guilty to federal fraud charges. John Gonzalez, who helped verify employment for the straw buyers, decided to testify against them.

Case Study: Church is where the sinners are
Liza Bautista was a mortgage broker with a strong client base inside her Christian church in Tukwila. After successfully closing several prime loans for folk with A-paper credit, she targeted consumers who were turned down by lenders in 2005 and 2006 (Hello? Who couldn’t get a mortgage in ’05 and ’06?) and created two sets of loan documents.  She submitted the credit history and identity of her prime, A paper clients to the lender funding the loan.  When it was time to sign papers, she forged her A paper client’s names on the loan documents and sent everything in for funding.  For the poor credit clients, she hand carried a second set of documents to be signed and then made a special offer to personally hand carry their mortgage payment to the lender each month.  (Note to consumers, don’t ever agree to this.) Of course, the payments never made it to the bank. Liza kept the money and subsequently, the lender started to foreclose on the A-paper owners, whose name appeared on title as the owners of record. When the A-paper clients were finally contacted by the lender and claimed they did not own said house, Liza started running out of places to hide.  The poor credit clients who were thrilled to be homeowners were obviously upset that their name were not on the title to the home and they were evicted after foreclosure.  Liza has lost her mortgage broker’s license. Rumor has it that she is still originating loans under a different name. From a quick search of the King County Court records (search by her name) you can see several court actions indicating the A-paper former clients have sued and won. The escrow company that Liza used had been operating without a license at the time.

As you can see, the most egregious cases of mortgage fraud are more than just a single person acting alone. There is usually a charismatic ringleader who recruits others. Sometimes the ringleader will target new or financially struggling loan originators, Realtors, escrow companies, and appraisers, who are all offered additional cash for participating.

The question that remains is how many defaults/foreclosures are the result of large-scale, organized mortgage fraud, and how many are the result of much smaller scale fraud that likely won’t see prosecution.  There never has been nor will there ever be enough government resources to regulate every single transaction written by every single industry person out there.  It is up to us to help point investigators in the right direction. 

Consumers as well as those of us in the industry can report mortgage fraud tips by following this link.

On CalculatedRisk, I recently read a blog post about securities rating agency Fitch (link opens the 11-page PDF report and requires site registration, but it’s free) opening up 45 loan files inside one of the failed CDOs, and guess what they found? Mortgage fraud galore and very shoddy underwriting which I will outline in Part 3.

Part 1 Mortgage Fraud Basics
Part 2 Case Studies
Part 3 Recent Mortgage Fraud Developments, and Future Outlook

Mortgage Fraud Part 1

Fraud is generally defined as the “intentional misrepresentation of the truth in order to deceive another.” Chris Swecker, Assistant Director of the FBI’s Criminal Investigative Division, defines mortgage fraud as any form of material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.

Before 9/11, mortgage fraud was considered to be the fastest growing white collar crime. After 9/11, money earmarked to investigate mortgage fraud nationwide was reallocated to Homeland Security.

Reports of mortgage fraud in 2000 were 3,515. By the year 2006 mortgage fraud-related suspicious activity reports rose to 28,372 or an average of 78 separate acts of mortgage fraud per day. (Source: Mortgage Asset Research Institute MARI April, 2007. Link opens PDF.)

Fraudulent mortgage activities result in artificially inflated property values, increased foreclosure rates, significant institutional financial losses, and increased costs which are passed on to consumers. This blog series on mortgage fraud will be divided up into 3 parts:

Part 1 Mortgage Fraud Basics
Part 2 Case Studies
Part 3 Recent Mortgage Fraud Developments and Future Outlook

There are three basic types of fraud in the residential mortgage industry:

1) Consumer fraud, or fraud for property, is perpetrated by borrowers when they misrepresent information on the loan application in order to purchase a more expensive home than one for which they would normally qualify. Consumer fraud is relatively minor and does not usually result in significant losses to a financial institution. However, recent statistics are alarming: Ninety percent of stated incomes were inflated by 5 percent or more, and in about 60 percent of cases, incomes were exaggerated by 50 percent or more.

2) Commission fraud is defined by one or more industry professionals misrepresenting information in a loan transaction in order to receive a commission on a loan that would not normally be acceptable to a lender. Commission fraud is a more common practice in the industry and is a concern to financial institutions. It can result in harm to the consumer and losses to lenders and insurers. Some researchers combine numbers 1 and 2.

3) Fraud for profit consists of systematic transactions by industry professionals who are attempting to steal a significant amount of the funds associated with one or more mortgage transactions. This type of fraud usually involves multiple parties in various disciplines within the mortgage industry, such as mortgage originators, appraisers, real estate agents, closing agents, builders and title companies. Fraud for profit usually results in significant—if not catastrophic—losses to financial entities involved in mortgage loan transactions and is of major concern to the mortgage industry. A few examples of this type of fraud include HUD I Settlement Statement fraud, land flips, fictitious lien releases and diversion of funds at closing.

Common Mortgage Fraud Schemes

Illegal Property Flipping
Property is purchased, falsely appraised at a higher value, and then quickly sold. The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflating buyer income, and so forth. Kickbacks to buyers, investors, property/loan brokers, appraisers, and title company employees are common in this scheme. A home worth $300,000 may be appraised for $400,000 or higher in this type of scheme. In part 2, I’ll tell you about an illegal property flipping scheme busted in Bellevue.

Silent Second
The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender. In part 2, I’ll lay out the now textbook case that happened over in Spokane.

Nominee Loans/Straw Buyers
The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee’s name and credit history to apply for a loan. There’s a set of cases like this here in Seattle.

Fictitious/Stolen Identity
A fictitious/stolen identity may be used on the loan application. The applicant may be involved in an identity theft scheme: the applicant’s name, personal identifying information and credit history are used without the true person’s knowledge. Washington State is on the top 10 list of states with identity theft problems.

Inflated Appraisals
An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

Foreclosure Schemes
The perpetrator identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. Perpetrators mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed and up-front fees. The perpetrator profits from these schemes by re-mortgaging the property or pocketing fees paid by the homeowner. Watch for a recent Bellingham case in part 2.

Equity Skimming
An investor may use a straw buyer, false income documents, and false credit reports, to obtain a mortgage loan in the straw buyer’s name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.

Undisclosed Seller Concessions
A home buyer and home seller strike up a side arrangement in which money from the seller is transferred to the buyer after the close of escrow. For example, a sales price could be increased to “cover” this arrangement, yet the appraiser and lender are not informed. Sometimes escrow or the real estate agents know about this; sometimes not.

Last month, in a keynote address (link opens PDF) to the Washington Association of Mortgage Brokers, Scott Jarvis, Director of the Department of Financial Institutions (DFI), concluded that “Washington State cannot afford to ingore this national trend.

sniglet and RCC over at seattlebubble explained that bubble markets can hide mortgage fraud and that we won’t see an increase in mortgage fraud but instead, as markets cool, past mortgage fraud will be exposed. It may also be true that in a cooling market, desperate sellers and commission-based sales people are more willing to do desperate things. Also, the fraudsters switch gears and hit homeowners in foreclosure. Local case studies will be presented in part 2.

Report mortgage fraud tips to the FBI by following this link.

Part 2 Case Studies
Part 3 Recent Mortgage Fraud Developments and Future Outlook

Mortgage Fraud 2008: Bellevue

This story is from the Seattle Times. A federal indictment has been issued for a Bellevue loan officer and his assistant. 

A former loan officer at a Bellevue mortgage company and his assistant have been indicted on a charge of conspiracy to commit wire fraud in a scheme that prosecutors say involved using straw buyers to purchase dozens of homes at inflated prices and siphoning off the extra cash for their own use.

Christopher Brooks and Amani Moss allegedly obtained more than $27 million in fraudulent loans for the purchase of at least 54 homes beginning in 2005, according to an indictment unsealed this morning.

The charges allege that they recruited straw buyers, who would allow the men to falsify loan papers for them. At the same time, Brooks and Moss would use a realtor, who is identified in the indictment by the initials “L.A.,” to find home sellers who were willing to overstate the purchase price of their homes. The straw buyers were paid between $7,000 and $10,000 for each transaction, the indictment says.

Brooks, who worked for America Mortgage in Bellevue, would then prepare and submit the false loan papers to several lenders in the area, according to court papers.

The difference between the inflated price and the actual purchase price of the home ranged from $30,000 to $778,000 per home, and the charges allege that money was funneled through a business owned by Moss, Peachtree Development, and into their pockets..

Home sellers, if your home is not selling and someone from our industry approaches you with an idea to take your home off the market and relist at a much, much higher price, please turn the person in to his or her regulator. If you are not sure who the regulator is, contact one of us and we can point you in the right direction.

The DFI Licensee database shows America Mortgage in Bellevue as a licensed mortgage broker. I wonder how many of these loans went into early payment default and how many the broker was asked to buy back from the lender.

In order to commit fraud at this level, the Realtor and mortgage broker would have had some help from an appraiser as well as an escrow closer.

Solutions to the Mortgage Lending Crisis

The mortgage industry crisis is a gift.  Mortgage lending can emerge from this mess and transform itself. I have been co-writing about predatory lending and the ambiguous professional status of retail mortgage salespeople for over 7 years. The industry has traded consumer respect for massive profits.  It does not matter where you work: banker, broker, credit union, consumer finance company. It does not matter what you call yourselves: Loan officer, loan originator, loan consultant, mortgage planner.  The average consumer does not understand the differences. 

Solution number 1
All retail mortgage salespeople, no matter where they work: bank, broker, credit union, consumer finance company, should owe fiduciary duties to consumers, just like a doctor or a lawyer does.  The process of purchasing or refinancing a home has become more and more complex over the past 20 years. This major financial decision is no less important than a medical procedure or legal matter.

Solution number 2
Let’s stop dancing around the ambiguous behavior we call “predatory lending” and define it.  We use to call such actions “fraud.” There are now 24 states that have passed anti-predatory lending legislation.  This means multi-state brokers must deal with a patchwork of state regulations.  A federal solution is in order, but we must also make sure that funds are set aside to regulate any new federal law. An un-regulated federal law is useless.

Solution number 3
If the industry does not like paying higher costs associated with more state and federal regulations, the industry has another choice: Self-regulation.  Any industry is far better of self-regulating rather than letting the government regulate for you.  The last time the mortgage industry had to swallow government forced regulation, we ended up with RESPA and the Truth-in-Lending Act. Oh, yes, these are such fine pieces of federal legislation and so easy to understand that the industry joyfully and voluntarily steps up to the plate every day to willfully comply with these two gems.

Every time I ask mortgage brokers the following question, I get the same answer, 100% of the time: “If you accidentally messed up and violated a federal or state law, would you want one of the competitors in your marketplace to give you a call and say, for example, ‘Hey there, I think you missed the APR on that piece of advertising’ or would you rather have your competitor turn you in to your state’s regulator?”  Everyone would rather have their competitor place a direct, friendly call to them.  There’s this really cool guy named Kant who came up with one way (well he came up with many ways but we’ll just focus on one right now) to help us figure out how to act ethically. He said that if we want something for ourselves (a courtesy phone call) then we must also want it for the other person.  “But, but,” you ask, “what if that other person is our competitor?”

Self-regulation means that the industry understands that consumer respect is only as high as it’s LOWEST player.  Self-regulation is a sign that an industry is moving forward and growing up.  Yes, it will mean requiring more pre and post education, tougher exams, and higher duties owed to consumers, but moving into the realm of professional status also means more prestige, less government oversight, and the fees emerging mortgage professionals will charge for their services and knowledge will be higher because their knowledge and duties will be worth more. If you regularly argue for less government intrusion and you are pro-business, you understand the value in self-regulation.

There are now four national professional associations where retail mortgage salespeople can voluntarily choose to act with professional status, or at least pledge a higher level of honesty than the existing industry associations.  Members of NAMB must simply look like they’re honest. 

Retail mortgage salespeople who join the Mortgage Professor’s Upfront Mortgage Brokers Association will guarantee, in writing, a fixed price for their services up front.  Members also pledge to put their client’s interests above their own.

The National Association of Mortgage Professionals has a Code of Ethics that is better than NAMB, MBAA or NAPMW.

The Certified Mortgage Planners have a more detailed Code of Ethics.  However, all a person has to do is attend a 3 day class and pass a test and I’m not sure I agree with their premise: To help consumers plan how to use their home equity.  This organization has some work to do in its intentionality.  Interestingly, a regular raincityguide.com reader sent me an entire slew of articles that catch lead Mortgage Planner instructor Barry Habib with his pants down recommending consumers choose subprime products, take their equity out of their home and invest it, and other “advice.”  Looks like CNBC hasn’t asked him for advice for a couple of months.

The National Association of Mortgage Fiduciaries Code of Ethics is prescriptive and detailed. We are the only professional organization whose code of ethics prescribes fiduciary duties and we are open to all people in the mortgage lending industry.

Ameriquest and Household Finance, two consumer loan lenders were forced by way of court settlement to cease rewarding their retail mortgage salespeople for steering trusting consumers into high cost, high rate loans. In contrast, Mike Dodge recently penned an Inman Guest Perspective in which his company, Internet Brands, voluntarily adopted a twelve point, detailed, home borrower’s Bill of Rights.

Solution Number 4
Require ratings agencies to do proper due diligence on pools of mortgage backed securities and dis-allow ratings agencies to be paid by the investment bankers; a conflict of interest that certainly should have been caught long ago.

Solution Number 5
Ban downpayment assistance programs which artificially inflate sales prices and are nothing more than seller money laundering according to Tanta. 

Solution Number 6
Require that mortgage companies that purchase leads be held accountable for the advertising used to harvest those leads.  Deceptive mortgage spam, deceptive radio ads, deceptive lead generation websites only serve to circumvent an ethical mortgage company’s attempts to advertise in accordance with state and federal laws.

Some view the mortgage industry meltdown as a threat. I see it as an opportunity to put the industry back on track ethically, to help retail mortgage salespeople transform into emerging professionals, rope predatory lending back into where it came from: the fraud corral, and open a national dialogue on self-regulation. What do you see? What solutions would you add to this list?